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Is a pyramid scheme illegal?

On Behalf of | Dec 28, 2020 | Blog, Criminal Defense, White Collar Crimes |

Pyramid schemes are unfortunately common in the United States, including in Michigan. They promote a get-rich-quick scheme through the multi-level marketing business ideations that come from them. For more information on pyramid schemes and their legality, continue reading below.

The ins and outs of pyramid schemes

Pyramid schemes are businesses in which one individual rules over the rest of the “pyramid-like” business model. The pyramid structure becomes wider as more entry-level employees join. Entry-level employees sometimes even have to pay money to get started with the business.

The three types

There are three types of pyramid schemes, but all three types follow the same basic business model found above. The first is the popular multi-level marketing scheme where you have to purchase a starter kit and sell the products that you purchase; this type is actually legal. A chain email scheme is meant to encourage individuals to donate money to the business through the link provided, but they continue forwarding the email to a new user. A Ponzi scheme relies on investment opportunities in which individuals invest a significant amount of money for a false promise of a significant return. Both chain email schemes and Ponzi schemes are illegal.

The failure of pyramid schemes

Most pyramid schemes do not work out and eventually fall to the ground. This may be due to the entry-level employees leaving and failing to provide revenue. In many cases, the legality of the business is thrown into question.

Though some pyramid schemes are perfectly legal, others are not. If you are accused of running an illegal pyramid scheme, you may want to contact a criminal defense lawyer to help you navigate the negative repercussions.